A Tax Depreciation blog by Paul Bennion.
- What is Tax Depreciation?Tax depreciation on a residential property is a deduction against assessable income allowing the owner to reduce the amount of taxation payable.
An investor is able to claim for two distinct types of depreciation on buildings. The first is Capital Allowance which is a deduction based on the historical construction costs of the property and may include surveying, engineering, architectural and building fees. The second is Plant and Equipment which includes items such as floor coverings, window treatments and fixed equipment i.e. cookers.
- How much tax deprecation can I claim?Most investors do not realize that tax benefits obtained through depreciation can be equivalent to 60% of the total purchase price of the property.
For a new apartment in a capital city, for example, this can equate to over $300,000 in possible tax benefits through depreciation.
- How did I claim these benefits?You should engage the services of a tax deprecation company who will undertake an inspection of your property and provide you with an ATO compliant tax depreciation report which you can provide to your accountant. This report is a ‘once off’ and will outline the amount of tax benefits you can claim on an annual basis. Anyone considering employing a tax depreciation company should ensure that they are a member of the Australian Institute of Quantity Surveyors (AIQS).
- How much does a tax depreciation schedule cost?Typically, it should cost around $600. This cost is tax deductible if you pay tax. It is a small investment considering the large amount of tax depreciation benefits you can obtain especially if you own a new or nearly new property.
- What if I own an investment property for several years and have not claimed my full tax deprecation benefits?DEPPRO estimates that only one in five residential investors make use of the tax depreciation entitlements which are available to all investors on all investment properties.
Many property investors who have owned their properties for several years and have not undertaken a tax depreciation schedule still have the potential to claim back thousands of dollars in tax depreciation benefits.
A depreciation schedule can be undertaken at any time by a property investor. If you own a property for a number of years, you can still undertake a depreciation schedule and put in an adjusted tax return to enable them to obtain unclaimed tax depreciation benefits.